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LinkedIn Corp Is Killing Off One of Its Biggest Growth Opportunities

After less than a year, Lead Accelerator is getting the boot.

Less than a year after launching Lead Accelerator, LinkedIn(NYSE:LNKD) is shutting down the service. Lead Accelerator was a retargeting solution for marketers, allowing them to target their website visitors through native and display advertisements on LinkedIn and its offsite ad network. When it launched, Lead Accelerator was seen as one of the best ways to capitalize on LinkedIn's robust data set of 414 million users.

"While initial demand was solid, the product required more resources than anticipated to scale," management said of Lead Accelerator. In the short-term, management estimates that shutting down the ad product will result in $50 million in lost revenue.

In the long run, the company believes its resources are better devoted to native advertising, the fastest growing part of its marketing solutions business. The technology used in Lead Accelerator will be further integrated with its Sponsored Updates products this year.

Failure to launchLead Accelerator held a lot of potential for growing the marketing solutions segment. The offering allowed for highly targeted ads across devices. With LinkedIn's focus on increasing time spent on mobile, Lead Accelerator could have played a key roll in improving mobile ad revenue. In fact, mobile now represents 57% of all LinkedIn traffic, and it's growing three times faster than overall member activity.

Both Facebook and Twitter offer retargeting tools and have seen a lot of demand for ads based on these capabilities. Social networks can track users and show ads across all the devices they have associated with their accounts, a key feature that makes retargeting so effective. For example, you can browse an online store on your desktop, then see an ad for it on your smartphone later in the day, making the ad more likely to convert.

While revenue from Sponsored Updates grew 85% year-over-year last quarter, Lead Accelerator's integration with the product almost certainly played a role. Management notes that growth has been driven by both higher engagement and customer adoption. Lead Accelerator supports both of these drivers with its well-targeted ads. As a result, the inability of LinkedIn management to scale Lead Accelerator may be a bigger setback than they are letting on.

LinkedIn needs to leverage its user dataUser data is what gives the best digital advertising companies like Facebook, Google, and Twitter their value. LinkedIn has a ton of great and unique user data, but with the end of Lead Accelerator, Sales Navigator remains its only product that takes advantage of that data set.

Sales Navigator provides marketers with lead recommendations based on user data. Unlike Facebook or Twitter, however, LinkedIn puts those targeting features behind a paywall, as Sales Navigator is part of its premium subscriptions segment. In fact, Sales Navigator is the fastest growing piece of that segment, thus showcasing the power and value of this data.

However, management is choosing to focus on how to grow its Sponsored Updates. This year will see the company add features like conversion tracking, which will certainly add value to the core ad product but neglects the big opportunity to monetize its data.

The company contends that shutting down Lead Accelerator was the best long-term option, as products like Sponsored Updates produce higher margins. Perhaps at some point in the future, LinkedIn can figure out how to scale Lead Accelerator. For now, one of the company's more promising offerings is on its way out.

Author

Adam has been writing for The Motley Fool since 2012 covering consumer goods and technology companies. He consumes copious cups of coffee, and he loves alliteration. He spends about as much time thinking about Facebook and Twitter's businesses as he does using their products. For some lighthearted stock commentary and occasional St. Louis Cardinals mania ... Follow @admlvy